ECB prepares way for further policy move next month

The European Central Bank held its key rates steady Thursday, but president Mario Draghi gave a strong hint that the bank is ready to act next month to avert looming deflation.

At its monthly meeting, held in Brussels this time instead of the usual venue of Frankfurt, the ECB’s governing council kept the key interest rate at the current all-time low of 0.25 percent for the seventh month in a row.

The announcement sent the euro spiking to its highest level in two and a half years.

Draghi explained that all the available information pointed the eurozone’s current modest recovery would continue.

However, the stubbornly low level of inflation in the single currency area is fuelling fears of possible deflation, a destructive downward spiral of falling prices.

Until now, the ECB has always insisted it sees no such dangers.

But in a surprise departure from the bank’s previous policy of never pre-committing on interest rate moves, Draghi said the decision-making body was now sufficiently concerned to take more action.

The governing council was “dissatisfied” with the current path of inflation and was “not prepared to accept it as a fact of nature,” Draghi said.

As a result, the governing council “is comfortable with acting next time,” he said.

But he added that “we want to see the staff’s projections that will come up in early June.”

The ECB is scheduled to publish its latest updated growth and inflation forecasts next month.

There was a consensus among council members that area-wide inflation must not remain at the current low levels, he explained.

Consumer price inflation in the eurozone was at 0.7 percent in April, up from 0.5 percent the previous month but well below the ECB’s target of 2 percent. Economic recovery was so far slow and tepid, and there were several downside risks, Draghi noted. (AFP)